Sunday, July 25, 2010

The Optimal Solution

Here's another telecom post (I've got some non-telecom stuff lined up for the near future). As I noted in my post last Wednesday, while net neutrality is currently a necessity, it is a far from optimal solution. It is exceedingly difficult to scope and define. For one, it typically relies on a nebulous concept of "reasonable network management practices" which are considered to be acceptable forms of discrimination. Also, it is difficult to figure out how to make it address service providers segmenting their network connection to deliver managed services (primarily video and voice) over bandwidth kept separate from the Internet segment of the connection without becoming increasingly invasive and intrusive into service provider business practices.

Indeed, as I concluded that post, it would be far better to negate the need for net neutrality by forcing carriers to provider open access to the local loop to their competitors. This solution, however, has its own problems. The biggest one is a pricing problem. When you force open access, you also have to set rates. Set them too high, and you've accomplished nothing because the competitors will be unable to compete with the incumbent and no competition materializes. Set them too low and the incumbent gets choked for revenue and cannot profitably maintain its infrastructure. Accurate, objective pricing data will be difficult to come by, and both sides will have strong motives to skew the numbers in their favor. It will be a constant back-and-forth battle, rife with lobbying, and with regulators ultimately picking winners and losers (either intentionally or accidentally).

No, the optimal solution is this solution. One government-funded fiber network to rule them all. For a one-time investment of about $38b US dollars, Australia will provide an essentially permanent solution to the broadband needs of all of its citizens. The network will be open access, allowing multiple service providers to compete to provide Internet access. It eliminates the natural monopoly of the last mile by making it a publicly-owned utility asset. And by wiring every home with fiber, it eliminates the need to ever perform a major network upgrade again. From here on out it will just be a matter of maintaining existing plant, and occasionally upgrading the optics at each end of the pipe.

Obviously, this would cost a lot more in the US. Looking at just in terms of the population ratio you'd figure that it would cost something like $400-500 billion to do the same thing here. Given the current fiscal situation, that's pretty unlikely to happen. But any municipal or county government with access to some cash really should be doing this.